New research has shown how investing a lump sum in solar or renewable investments rather than an existing pension can deliver double-digit, ISA-like tax free returns for private investors in their retirement.
The figures were compiled by EvoEnergy (www.evoenergy.co.uk) after former climate change minister Greg Barker claimed earlier this year that solar could deliver better returns than a pension.
They compared the estimated returns that could be achieved over 20 years through investing £5,550 in either solar panels, ‘debentures’ for renewables projects or a typical managed pension fund.
The results showed that domestic solar could deliver annual returns of more than 10 per cent for the duration of the Feed-in Tariff (FiT), while a typical managed pension fund could be expected to grow by six per cent year on year over the same period after charges.
Those choosing to invest in certain larger renewables projects through a debentures-type scheme, meanwhile, can achieve yearly returns as high as eight per cent.
While pensions come with the extra benefit of government tax relief, the difference in annual returns between PV and a pension from the same initial investment shows yet again, according to the PV provider, why solar investing should be seen as a serious addition for investors looking to diversify their existing retirement portfolios.
Steve Wilks, director of finance at EvoEnergy, said: “Following the minister’s announcement in February, we set out to see for ourselves exactly how solar actually stacked up against a pension as an investment aimed specifically at delivering income before and after retirement.
“Mr Barker said returns of eight per cent or above could be achieved – what we found was that, with an average, unshaded 3kW array installed at a cost of £5,550 upfront, a homeowner could see returns of more than 10 per cent once the FiT, export tariff and possible energy savings are accounted for.
“That’s more than £600 per year before inflation with just a moderate 25 percent saving off energy bills accounted for. Figures like that, along with the falling cost of installations and the security offered by the 20-year FiT, show that solar can now be on everyone’s radar when they’re planning for the future. The fact that returns are both income tax free and available before 55 just makes them look even better.
“Investing in solar is by no means a direct replacement for traditional pension funds, in our opinion. However, what it does offer is a tax-efficient alternative for a lump sum that isn’t susceptible to market fluctuations that can deliver significant returns over the medium to long-term in addition to a pension.”